It gives me immense pleasure to present the Annual Report and Financial
 Statements of Bank of Baroda for the year ended 31st March, 2011. This
 year also, the Bank continued its tradition of delivering a strong core
 performance and carrying out strategies towards creating a customer-
 centric bank.
 
 ECONOMICC REVIEW
 
 The year 2010-11 brought out a definite improvement in global
 confidence and stability, though the economic recovery remained uneven
 between advanced countries and emerging markets. The Indian economy
 continued to outperform most emerging markets during 2010-11 retaining
 its position as the second fastest growing economy, after China,
 amongst the G-20 countries.
 
 During 2010-11, India’s economic growth reverted to the high growth
 trajectory (estimated at 8.5% by the Central Statistical Organisation,
 Government of India) on the back of a rebound in agriculture and
 sustained levels of activity in industry and services. Aggregate demand
 momentum remained healthy as reflected in indicators like strong
 corporate sales growth, improving capacity utilisation and higher
 employment generation. Sustained improvement in exports during the
 year, facilitated moderation of the current account deficit.
 
 However, headline inflation exhibited strong persistence in 2010-11 and
 throughout this year stayed above the Reserve
 
 Bank of India’s (RBI) indicated projections. The inflationary process
 reflected both supply shocks and gradual generalisation of price
 pressures. The monthly inflation for March, 2011 was as high as 9.02%
 (y-o-y). In response to the elevated level of inflation, the RBI
 continually tightened its Monetary Policy throughout the year.
 Liquidity conditions stayed tight for most part of the year with some
 easing during the last quarter. Both deposit and lending rates firmed
 up in response to the Monetary Policy signals. On the back of strong
 capex and working capital demand, the banks’ non-food credit expanded
 by 21.2% (y-o-y), while aggregate deposits grew by 15.8% (y-o-y) during
 2010-11.  The sectoral deployment of banks’ non-food credit continued
 to remain broad-based. The strong growth environment and the improved
 corporate credit profile eased the asset quality concerns especially
 for the banks that had maintained well diversified loan-books and
 modest exposures to sensitive sectors.
 
 BANK OF BARODA: A STABLE AND
 
 Cashing in on its strong capital and liquidity position, robust
 liability franchise and improved credit culture, the Bank has managed
 to gain market share consistently during the past three years amidst
 maintaining high profitability and asset quality standards. The Bank’s
 Return on Average Assets at 1.33% for 2010-11 is one of the highest
 amongst its peer banks and supportive of its relatively superior Return
 on
 
 Equity (at 21.48%). Even as it has grown its balance sheet at faster
 pace than the industry average, it has sustained the best asset quality
 standards. Over the period 2007-08 to 2010-11, the Bank’s delinquency
 ratio of 1.0% to 1.2% is one of the lowest that also reflects its low
 stressed asset portfolio. The Bank’s consistently high Provision
 Coverage Ratio around 85.0% (including the technical write-offs)
 excellently cushions its earnings against any downside economic risks
 in future.
 
 NEW INITIATIVES
 
 During the year under review, the Bank took forward its end-to-end
 Business and IT Strategy Project covering in entirety its domestic,
 overseas and subsidiary operations.  Not just all the branches and
 extension counters in India were brought on the Core Banking Solution
 (CBS) platform, the CBS was also implemented in its five Regional Rural
 Banks (RRBs) covering 1,218 branches and three extension counters. The
 Bank built the best technology infrastructure by implementing a
 State-of-the-Art Data Centre conforming to Uptime Institute Tier-3
 Standards and also a Disaster Recovery Site in different seismic zones
 with the redundancy built in every single point of failure to ensure
 uninterrupted service delivery to customers.
 
 The Bank provided to its customers Internet Banking, viz., Baroda
 Connect and other facilities such as the online payment of direct and
 indirect taxes and certain State Government taxes, utility bills, rail
 tickets, online shopping, donation to temples and institutional fee
 payment. The Bank took many initiatives during the year to provide its
 corporate customers the facility of direct salary uploads, trade
 finance and State tax payments.
 
 The Bank also implemented the Fraud Management Solution for two factor
 authentication for e-banking transactions in India. The SMS Alerts
 Delivery Gateway was upgraded for delivering Internet Banking alerts in
 India, UAE, Botswana, Uganda, New Zealand, Kenya, Mauritius and
 Seychelles. By 31st March 2011, the Bank’s ATM network expanded to
 1,561. As a customer centric initiative, the Bank implemented multiple
 accounts being linked to a single Debit Card (verified by VISA, CVV2)
 and enabled e-Tax Payments through the ATMs. Furthermore, the Bank
 launched mobile ATMs in Ahmedabad, Pune, Lucknow and New Delhi.
 
 Additionally, the Bank introduced Mobile Banking (Baroda M-connect)
 providing its customers various banking facilities through mobile
 connection.
 
 Besides these, the Bank took several other IT related initiatives such
 as Retail Depository Services, Online Trading System, Cash Management
 System, SWIFT facility, Payment Messaging Solution (PMS), New Credit
 Card Management System and Integrated Global Treasury Solution in
 various territories of its operations like UK, UAE, Bahamas, Bahrain,
 Hong Kong, Singapore, Belgium and
 
 also in India, reducing the overall cost of operations and better funds
 management.
 
 From the Retail side, the Bank launched two new retail asset products
 styled as “Baroda Traders Loan Against the Security of Gold Ornaments
 /Jewellaries” and “Baroda Advance Against Gold Ornaments /Jewellaries”
 in all its Metro and Urban branches in India. Besides, in line with the
 Government’s directive, the Bank started an Education Loan Interest
 Subsidy scheme for students belonging to economically weaker sections.
 
 From the liability side, a term deposit product designed as “Baroda
 Utsav Deposit Scheme” for 444 days was introduced in the month of
 October to mobilise deposits in a sustainable fashion. The Bank also
 launched two new retail liability products under Savings Bank Segment
 styled as “Baroda Pensioners Savings Account” specially meant for
 pensioners and a life insurance linked Savings product styled as
 “Baroda Jeevan Suraksha Savings Account” under the Tie-up arrangement
 with IndiaFirst Life Insurance Company.
 
 As a responsible corporate citizen, it has been the vision of the Bank
 to empower the community through socio- economic development of
 underprivileged and weaker sections. In its continued efforts to make a
 difference to the society at large, the Bank took a few more concrete
 steps during 2010-11. The Bank formulated a three-year financial
 inclusion Plan as per the RBI guidelines issued in 2010.
 
 Keeping in view the mandate given by the Government of India, the State
 Level Bankers’ Committee allotted to the Bank 2,864 villages, having
 population of more than 2,000 that were to be covered under the banking
 net by March 2012. Out of these, 1,200 villages were targeted to be
 covered under Financial Inclusion by March 2011. The Bank comfortably
 surpassed this target and extended banking services to 1,228 villages
 in the year 2010-11. To reach out to the villages, the Bank adopted two
 delivery channels, i.e.
 
 ICT based Business Correspondent (BC) Model and the Mobile Banking
 Model.
 
 The Bank designed various strategies during the year 2010- 11 to
 harness emerging opportunities for Rural and Agriculture lending. To
 help rural community with the provision of credit counseling, financial
 literacy and other services like information on the prices of
 agricultural products, scientific farming, etc., the Bank established
 52 Baroda Grameen Paramarsh Kendras as on 31st March, 2011. Eleven more
 Baroda Swarojgar Vikas Sansthans (BSVSs) were opened during 2010-11.
 With this, the total number of BSVSs went up to 36. The BSVSs are
 primarily the outfits for training the youth and imparting knowledge
 and skills required for taking up self-employment ventures.  During the
 year under review, 42,212 youth beneficiaries were trained, out of
 which 28,331 have already established
 
 their self-employment ventures. So far, the Bank trained 79,442
 beneficiaries through these centers, out of which 50,035 have
 established their self employment ventures.  The Bank also opened 14
 new Financial Literacy & Credit Conselling Centres (FLCCs) during
 2010-11, taking the total number of FLCCs to 18 by end-March 2011.
 
 In the area of Wealth Management, the Bank has formed two joint
 ventures (JV) with the leading international brands in the Mutual Fund
 and Life Insurance segments during the last couple of years.
 
 These two organisations -- Baroda Pioneer Asset Management Co. Ltd., a
 joint venture in mutual Fund in association with Pioneer Investments of
 Italy, and IndiaFirst Life Insurance Co., a joint venture in Life
 Insurance with Andhra Bank and L&G of U.K. have successfully positioned
 themselves in the Indian market with encouraging performance even in
 the initial stages of their business.
 
 Additionally, the Bank extended Application Supported by Blocked Amount
 (ASBA) facility, the supplementary process of applying to IPO/FPO/Right
 issues to 2,100 more branches during the year. The Bank also introduced
 during the year, on-line ASBA Facility for its net banking customers.
 The facility provided the convenience of a simple, instant, secure and
 24x7 facility to apply for IPO/FPO/NFO to the Bank’s customers from the
 comfort of their homes.
 
 The Bank also established the Baroda Gold Lounge’ facility in 13
 strategically located branches to provide investment advisory services
 to the HNI customers of the Bank.
 
 BUSINESS AND FINANCIAL ACHIEVEMENTS
 
 Consistent with its past track record, the Bank delivered Superior
 Profitability and Best Asset Quality performance during the year
 2010-11 by further gaining market share from both the assets and
 liabilities sides.
 
 The Bank’s Global Business touched the mark of Rs 5,34,116 crore in
 2010-11 posting a growth of 28.3% (y-o-y).  The Bank’s performance on
 the business front was much above the banking industry’s average. In
 its Indian operations, the Bank’s Deposits and Advances increased
 healthily by 25.8% and 28.7%, respectively.
 
 Even in a rising fixed (or term) deposit interest scenario, the Bank’s
 Domestic Low-cost or CASA deposits richly grew by 21.4% (y-o-y) forming
 34.4% share of the total Domestic Deposits. The Bank’s Priority Sector
 Credit too recorded a decent growth of 18.2% during 2010-11 and formed
 43.57% of its Adjusted Net Bank Credit, easily surpassing the mandatory
 requirement of 40.00%.
 
 Sectorally speaking, the Bank posted a growth of 29.6% in its SME
 credit, 13.5% in Farm credit, [28.7% in Direct Agriculture credit] and
 33.8% in Retail credit reflecting a well-balanced growth across
 different sectors.
 
 During the year under review, the Total Business of the
 
 Bank’s Overseas branches registered a robust growth of 32.5% on the
 back of surging world trade volumes and a rebound in the activities of
 Indian corporates abroad. In Overseas operations, the Bank’s Customer
 Deposits increased by 23.4%, Total Deposits by 29.3% and Advances by
 36.6%. Supported by steady and better than industry average spreads and
 a good pool of fee-based income, the Bank’s Gross Profit in Overseas
 operations posted a healthy growth of 23.9%. The Bank’s Overseas
 Business contributed 24.6% to the Bank’s Global Business, 17.1% to its
 Gross Profits and 32.1% to its Core Fee-based Income. Besides, the
 Total Assets of the Bank’s International Operations increased from Rs
 68,375 crore to Rs 91,273 crore registering a growth of 33.5% during
 the year 2010-11.
 
 For the Bank as a whole, Gross Profits grew impressively by 43.8% to Rs
 6,981.61 crore and Net Profit by 38.7% to Rs 4,241.68 crore - much
 ahead of the market expectations.  Despite increased provisions,
 especially on account of the pension liabilities of the employees, a
 strong growth in Net Interest Income (at 48.2%), a good traction of
 Core Fee- based income and a modest growth in Operating Expenses
 enabled the Bank to achieve such record levels of incomes and profits
 during the year 2010-11.
 
 Even as the Bank gained market share in loans, it has sustained the
 best asset quality standards within the Indian banking universe. In
 line with its past record, the Bank succeeded in restricting its
 Incremental Delinquency Ratio to 1.09%, Gross NPAs to 1.36% and Net
 NPAs to 0.35% during 2010-11. The Bank’s Loan Loss Coverage Ratio
 (including technical write-offs) too stood at the healthy level of
 85.0% as on 31st March 2011.
 
 As regards the shareholders’ return ratios, within just a year, the
 Bank’s Return on Average Assets (ROAA) improved to 1.33% from 1.21%,
 Earnings per Share (EPS) to Rs 116.37 from Rs 83.96 and the Book Value
 per Share (BVPS) to Rs 504.43 from Rs 378.40 on the back of
 significantly improved core performance. Furthermore, the Bank’s
 Cost-Income ratio sharply declined from the previous year’s level of
 43.57% to 39.87%, reflecting the Bank’s improved earnings profile and
 prudent control over operating expenses.
 
 During the year 2010-11, the Bank received Rs 2,461 crore from the
 Government of India in support of its healthy asset expansion. With
 this, the Government’s shareholding in the Bank increased from 53.81%
 to 57.03%, improving the Bank’s Capital Adequacy Ratio (Basel II) to
 14.52% and the Tier 1 capital ratio to 9.99%.
 
 LOOKING FORWARD
 
 The financial year 2011-12 is going to be quite challenging for the
 Indian banking industry. According to the RBI’s Annual Monetary Policy
 document, high global crude oil and other commodity prices pose big
 risks to India’s growth and inflation. Yet, the GDP growth is expected
 to stay close
 
 to the trend in 2011-12 (around 8.0%), which itself is a huge
 opportunity for the Indian banking industry. Given this, managing
 credit growth above industry-average along with superior asset quality
 will be the key challenge for the Bank.
 
 However, our Bank’s comfortable position with respect to capital and
 liquidity, strong systems of credit origination and credit monitoring,
 continuous investment in human capital and novel BPR initiatives during
 the last couple of years give us enough confidence that we will be able
 to shoulder this challenge well.
 
 Even during 2011-12, thrust will be placed on efficient pricing of
 deposits and loans, higher CASA mobilisation and lower dependence on
 bulk business for margin improvement.
 
 Similarly, the Bank would endeavour to (1) attain a well- balanced
 growth in its loanbook across different sectors like retail, SME,
 agriculture, wholesale etc. and across different geographies (including
 domestic & overseas), (2) further strengthen its systems for credit
 origination and monitoring and (3) maintain a high provision coverage
 ratio to protect the quality of its asset portfolio from any downside
 growth risks. A stable average growth in all business parameters
 coupled with minimum fresh slippages; a robust fee-based income in line
 with the growth of corporate credit business and a prudent control over
 operating expenses will be the primary objectives of the Bank during
 2011-12. The Bank’s well-capitalised balance sheet and excellent
 liquidity management would enable it to gain further market share
 during 2011-12.
 
 The Bank has been building strong foundation for future growth by
 continuously working on enhancing the HR capabilities through its
 Business Process Reengineering (BPR) project in consultation with
 Mckinsey & Co. At the same time, the Bank would focus on speedy
 development of marketing and “sales and service” culture within the
 organization. Taking into account the critical need for building
 leadership qualities and skills in persons holding key positions, the
 Bank has already introduced a comprehensive leadership development
 program Project UDAAN’ covering the branch heads of the Bank’s urban
 and metro branches and other senior executives. The Bank would leverage
 on the HR capabilities built through such initiatives and continue to
 nurture the competencies of these valuable resources.
 
 With increasing competition in the banking industry, the Bank would
 initiate many business initiatives during 2011-12
 
 with enhanced customer orientation. The Bank would concentrate on
 sharpening its competitive edge by improving its business strategies &
 performance and also protecting its credibility by delivering on the
 promises, as in the past.
 
 BANKS CORPORATE GOALS AND STRATEGY
 
 For the year 2011-12, the Bank has selected the motto “Business Growth
 through Sales and Service Excellence.” Making Bank of Baroda the “Most
 Admired Bank” is a continuous process. It represents the dream of the
 Bank’s founder Maharaja Sayajirao Gaekwad III and a series of legendary
 leaders who carved out the ethics and philosophy of the Bank that has,
 time and again, helped us in overcoming the most adverse business
 challenges reinforcing our faith in our strong systems, processes and
 human resources.
 
 Responding to the challenges of heightened competition and to improve
 its position in the market place, the Bank has been continuously
 focusing on business transformation with several pioneering efforts in
 the banking sector. During 2011-12, we will try to achieve our goals by
 focusing upon customer needs and preferences and fulfilling them in a
 cost effective manner by leveraging our strong technology platform.
 
 The Bank’s focus has always remained on the stable and consistent
 growth with quality. The fact that the Bank has been delivering on its
 promises year after year has won the Bank several recognitions both
 nationally and internationally.  During 2010-11, the Bank won various
 awards for its best business and financial performance in the banking
 arena.
 
 Today, the Bank has over 39 million global customers to serve. It is
 well understood by us that it is essential to harness the HR
 capabilities built in the Bank over time and taking forward the Bank’s
 BPR initiatives. We will make active efforts to promote business growth
 through sales and service excellence by continuously working on our
 people and processes.
 
 In this journey of scaling the new heights, I solicit your continued
 cooperation and patronage.
 
                                                        M. D. Mallya
 
                                        Chairman & Managing Director